9.

G.R. No. L-5219 February 15, 1910

JOSE McMICKING, sheriff of Manila, Plaintiff-Appellee, vs. PEDRO MARTINEZ and

GO JUNA, defendants.
GO JUNA, Appellant.

MORELAND, J.:

The defendant, Pedro Martinez, some time during the year 1908 obtained judgment in the
Court of First Instance of the city of Manila against one Maria Aniversario; that thereafter
execution was issued upon said judgment and the sheriff levied upon a pailebot, Tomasa,
alleged to be the property of said Maria Aniversario; that thereupon the said defendant Go
Juna intervened and claimed a lien upon said boat by virtue of a pledge of the same to him by
the said Maria Aniversario made on the 27th day of February, 1907, which said pledge was
evidenced by a public instrument bearing that date.chanroblesvirtualawlibrary chanrobles
virtual law library

This action was brought by the sheriff against Go Juna and Pedro Martinez to determine the
rights of the parties to the funds in his hands. Maria Aniversario was not made a
party.chanroblesvirtualawlibrary chanrobles virtual law library

The said Pedro Martinez alleged as a defense that the pledge which said document was
intended to constitute had not been made effective by delivery of the property pledged, as
required by article 1863 of the Civil Code, and that, therefore, there existed no preference in
favor of said Go Juna.chanroblesvirtualawlibrary chanrobles virtual law library

The court below found with the contention of the said Pedro Martinez, declared a preference
in his favor, and ordered the sheriff to pay over the said funds in consonance therewith. An
appeal was taken from said judgment.chanroblesvirtualawlibrary chanrobles virtual law
library

The conclusion of the court below that the property was not delivered in accordance with the
provisions of article 1863 of the Civil Code is sustained by the proofs. His conclusion that the
pledge was ineffective against Martinez is correct. It appears, however, that the document of
pledge is a public document which contains an admission of indebtedness. In other words,
while it is intended to be a pledge, it is also a credit which appears in a public document.
Article 1924, paragraph 3, letter a, is therefore applicable; and, said public document
antedating the judgment of defendant Martinez, takes preference thereover. The validity of
that document in so far as it shows an indebtedness against Maria Aniversario and its
effectiveness against her have not, however, been determined. She is not a party to this action.
No judgment can be rendered affecting her rights or liabilities under said instrument. If said
instrument is invalid or for any other cause unenforceable against her, it would be wholly
unjust, by declaring its preference over a debt acknowledged by and conclusive against her, to
require that said funds be paid over to the holder of said document. That would be to require
her to pay a debt which has not only not been shown to be enforceable against her but which,
as a witness for the defendant Martinez on the trial of this cause, she expressly and
vehemently repudiated as a valid claim against her.chanroblesvirtualawlibrary chanrobles
virtual law library
The judgement is, therefore, reversed; and it is ordered that the cause be returned to the court
below; that the plaintiff bring in Maria Aniversario as a party to this action, and that she be
given an opportunity to make her defense, if she have any, to the document in question under
proper procedure. No fi

18.
G.R. No. 101163 January 11, 1993

STATE INVESTMENT HOUSE, INC., petitioner,

vs.
COURT OF APPEALS and NORA B. MOULIC, respondents.

BELLOSILLO, J.:

The liability to a holder in due course of the drawer of checks issued to another merely as
security, and the right of a real estate mortgagee after extrajudicial foreclosure to recover the
balance of the obligation, are the issues in this Petition for Review of the Decision of
respondent Court of Appeals.

Private respondent Nora B. Moulic issued to Corazon Victoriano, as security for pieces of
jewelry to be sold on commission, two (2) post-dated Equitable Banking Corporation checks
in the amount of Fifty Thousand Pesos (P50,000.00) each, one dated 30 August 1979 and the
other, 30 September 1979. Thereafter, the payee negotiated the checks to petitioner State
Investment House. Inc. (STATE).

MOULIC failed to sell the pieces of jewelry, so she returned them to the payee before
maturity of the checks. The checks, however, could no longer be retrieved as they had already
been negotiated. Consequently, before their maturity dates, MOULIC withdrew her funds
from the drawee bank.

Upon presentment for payment, the checks were dishonored for insufficiency of funds. On 20
December 1979, STATE allegedly notified MOULIC of the dishonor of the checks and
requested that it be paid in cash instead, although MOULIC avers that no such notice was
given her.

On 6 October 1983, STATE sued to recover the value of the checks plus attorney's fees and
expenses of litigation.

In her Answer, MOULIC contends that she incurred no obligation on the checks because the
jewelry was never sold and the checks were negotiated without her knowledge and consent.
She also instituted a Third-Party Complaint against Corazon Victoriano, who later assumed
full responsibility for the checks.

On 26 May 1988, the trial court dismissed the Complaint as well as the Third-Party
Complaint, and ordered STATE to pay MOULIC P3,000.00 for attorney's fees.

STATE elevated the order of dismissal to the Court of Appeals, but the appellate court
affirmed the trial court on the ground that the Notice of Dishonor to MOULIC was made
beyond the period prescribed by the Negotiable Instruments Law and that even if STATE did
serve such notice on MOULIC within the reglementary period it would be of no consequence
as the checks should never have been presented for payment. The sale of the jewelry was
never effected; the checks, therefore, ceased to serve their purpose as security for the jewelry.

We are not persuaded.

The negotiability of the checks is not in dispute. Indubitably, they were negotiable. After all,
at the pre-trial, the parties agreed to limit the issue to whether or not STATE was a holder of
the checks in due course. 1

In this regard, Sec. 52 of the Negotiable Instruments Law provides

Sec. 52. What constitutes a holder in due course. A holder in due course is a holder who
has taken the instrument under the following conditions: (a) That it is complete and regular
upon its face; (b) That he became the holder of it before it was overdue, and without notice
that it was previously dishonored, if such was the fact; (c) That he took it in good faith and for
value; (d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.

Culled from the foregoing, a prima facie presumption exists that the holder of a negotiable
instrument is a holder in due course. 2 Consequently, the burden of proving that STATE is not
a holder in due course lies in the person who disputes the presumption. In this regard,
MOULIC failed.

The evidence clearly shows that: (a) on their faces the post-dated checks were complete and
regular: (b) petitioner bought these checks from the payee, Corazon Victoriano, before their
due dates; 3 (c) petitioner took these checks in good faith and for value, albeit at a discounted
price; and, (d) petitioner was never informed nor made aware that these checks were merely
issued to payee as security and not for value.

Consequently, STATE is indeed a holder in due course. As such, it holds the instruments free
from any defect of title of prior parties, and from defenses available to prior parties among
themselves; STATE may, therefore, enforce full payment of the checks. 4

MOULIC cannot set up against STATE the defense that there was failure or absence of
consideration. MOULIC can only invoke this defense against STATE if it was privy to the
purpose for which they were issued and therefore is not a holder in due course.

That the post-dated checks were merely issued as security is not a ground for the discharge of
the instrument as against a holder in due course. For the only grounds are those outlined in
Sec. 119 of the Negotiable Instruments Law:

Sec. 119. Instrument; how discharged. A negotiable instrument is discharged: (a) By

payment in due course by or on behalf of the principal debtor; (b) By payment in due course
by the party accommodated, where the instrument is made or accepted for his
accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act
which will discharge a simple contract for the payment of money; (e) When the principal
debtor becomes the holder of the instrument at or after maturity in his own right.

Obviously, MOULIC may only invoke paragraphs (c) and (d) as possible grounds for the
discharge of the instrument. But, the intentional cancellation contemplated under paragraph
(c) is that cancellation effected by destroying the instrument either by tearing it up, 5 burning
it, 6 or writing the word "cancelled" on the instrument. The act of destroying the instrument
must also be made by the holder of the instrument intentionally. Since MOULIC failed to get
back possession of the post-dated checks, the intentional cancellation of the said checks is
altogether impossible.

On the other hand, the acts which will discharge a simple contract for the payment of money
under paragraph (d) are determined by other existing legislations since Sec. 119 does not
specify what these acts are, e.g., Art. 1231 of the Civil Code 7 which enumerates the modes of
extinguishing obligations. Again, none of the modes outlined therein is applicable in the
instant case as Sec. 119 contemplates of a situation where the holder of the instrument is the
creditor while its drawer is the debtor. In the present action, the payee, Corazon Victoriano,
was no longer MOULIC's creditor at the time the jewelry was returned.

Correspondingly, MOULIC may not unilaterally discharge herself from her liability by the
mere expediency of withdrawing her funds from the drawee bank. She is thus liable as she has
no legal basis to excuse herself from liability on her checks to a holder in due course.

Moreover, the fact that STATE failed to give Notice of Dishonor to MOULIC is of no
moment. The need for such notice is not absolute; there are exceptions under Sec. 114 of the
Negotiable Instruments Law:

Sec. 114. When notice need not be given to drawer. Notice of dishonor is not required to
be given to the drawer in the following cases: (a) Where the drawer and the drawee are the
same person; (b) When the drawee is a fictitious person or a person not having capacity to
contract; (c) When the drawer is the person to whom the instrument is presented for payment:
(d) Where the drawer has no right to expect or require that the drawee or acceptor will honor
the instrument; (e) Where the drawer had countermanded payment.

Indeed, MOULIC'S actuations leave much to be desired. She did not retrieve the checks when
she returned the jewelry. She simply withdrew her funds from her drawee bank and
transferred them to another to protect herself. After withdrawing her funds, she could not have
expected her checks to be honored. In other words, she was responsible for the dishonor of
her checks, hence, there was no need to serve her Notice of Dishonor, which is simply
bringing to the knowledge of the drawer or indorser of the instrument, either verbally or by
writing, the fact that a specified instrument, upon proper proceedings taken, has not been
accepted or has not been paid, and that the party notified is expected to pay it. 8

In addition, the Negotiable Instruments Law was enacted for the purpose of facilitating, not
hindering or hampering transactions in commercial paper. Thus, the said statute should not be
tampered with haphazardly or lightly. Nor should it be brushed aside in order to meet the
necessities in a single case. 9

The drawing and negotiation of a check have certain effects aside from the transfer of title or
the incurring of liability in regard to the instrument by the transferor. The holder who takes
the negotiated paper makes a contract with the parties on the face of the instrument. There is
an implied representation that funds or credit are available for the payment of the instrument
in the bank upon which it is drawn. 10 Consequently, the withdrawal of the money from the
drawee bank to avoid liability on the checks cannot prejudice the rights of holders in due
course. In the instant case, such withdrawal renders the drawer, Nora B. Moulic, liable to
STATE, a holder in due course of the checks.

Under the facts of this case, STATE could not expect payment as MOULIC left no funds with
the drawee bank to meet her obligation on the checks, 11 so that Notice of Dishonor would be
futile.
The Court of Appeals also held that allowing recovery on the checks would constitute unjust
enrichment on the part of STATE Investment House, Inc. This is error.

The record shows that Mr. Romelito Caoili, an Account Assistant, testified that the obligation
of Corazon Victoriano and her husband at the time their property mortgaged to STATE was
extrajudicially foreclosed amounted to P1.9 million; the bid price at public auction was only
P1 million. 12 Thus, the value of the property foreclosed was not even enough to pay the debt
in full.

Where the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure
of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. 13 The step thus
taken by the mortgagee-bank in resorting to an extra-judicial foreclosure was merely to find a
proceeding for the sale of the property and its action cannot be taken to mean a waiver of its
right to demand payment for the whole debt. 14 For, while Act 3135, as amended, does not
discuss the mortgagee's right to recover such deficiency, it does not contain any provision
either, expressly or impliedly, prohibiting recovery. In this jurisdiction, when the legislature
intends to foreclose the right of a creditor to sue for any deficiency resulting from foreclosure
of a security given to guarantee an obligation, it so expressly provides. For instance, with
respect to pledges, Art. 2115 of the Civil Code 15 does not allow the creditor to recover the
deficiency from the sale of the thing pledged. Likewise, in the case of a chattel mortgage, or a
thing sold on installment basis, in the event of foreclosure, the vendor "shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary will be void". 16

It is clear then that in the absence of a similar provision in Act No. 3135, as amended, it
cannot be concluded that the creditor loses his right recognized by the Rules of Court to take
action for the recovery of any unpaid balance on the principal obligation simply because he
has chosen to extrajudicially foreclose the real estate mortgage pursuant to a Special Power of
Attorney given him by the mortgagor in the contract of mortgage. 17

The filing of the Complaint and the Third-Party Complaint to enforce the checks against
MOULIC and the VICTORIANO spouses, respectively, is just another means of recovering
the unpaid balance of the debt of the VICTORIANOs.

In fine, MOULIC, as drawer, is liable for the value of the checks she issued to the holder in
due course, STATE, without prejudice to any action for recompense she may pursue against
the VICTORIANOs as Third-Party Defendants who had already been declared as in default.

WHEREFORE, the petition is GRANTED. The decision appealed from is REVERSED and a
new one entered declaring private respondent NORA B. MOULIC liable to petitioner STATE
INVESTMENT HOUSE, INC., for the value of EBC Checks Nos. 30089658 and 30089660
in the total amount of P100,000.00, P3,000.00 as attorney's fees, and the costs of suit, without
prejudice to any action for recompense she may pursue against the VICTORIANOs as Third-
Party Defendants.

Costs against private respondent.

SO ORDERED.

Cruz and Grio-Aquino, JJ., concur.

Padilla, J., took no part.

 27.
G.R. No. L-24824 January 30, 1926

VICENTE DIAZ and TEODORA RUBILLOS, plaintiffs-appellees,

vs.
SECUNDINO DE MENDEZONA ET AL., defendants.
SECUNDINO DE MENDEZONA, appellant.

VILLAMOR, J.:

It appears from the record that the plaintiffs-appellees commenced an action in the Court of
First Instance of Leyte for the collection of a mortgage credit of P10,000. Defendant-appellant
was adjudged in default and the court rendered judgment, ordering the sale of the mortgaged
properties. Before the expiration of the period of ninety days that the law grants the debtor
within which to pay the amount of the indebtedness, a writ of execution was issued on March
24, 1919, which was duly enforced by the sheriff, selling the mortgaged properties and giving
possession thereof to the plaintiff-appellees on June 18, 1919.

Upon motion of the defendant-appellant, the lower court on September 22, 1920, annulled all
the proceedings had under the writ of execution, including the sale of the mortgaged property.
The plaintiff-appellees appealed from said order, which was affirmed by this court in a
decision rendered June 9, 1922 (R. G. No. 17536).1

The record having been remanded to the court of origin proceeding was again had for the sale
of the mortgaged property, the same having been sold to the mortgaged creditor. The court
annulled said proceeding and the second sale to the mortgage creditor in view of certain
irregularities committed in the proceeding. The plaintiffs appealed to this court, and this court,
in a decision published December 16, 1924, affirmed the order appealed from (R. G. No.
22735).2 The record having been remanded for the second time to the court of origin, the
defendant-appellant, on March 14, 1925, reviving his motions dated December 20, 1920, and
June 24, 1922, petitioned the court that the plaintiffs be ordered to render an account
beginning June 18, 1919, when they took possession of the mortgaged premises. The court
denied the motion, and for the third time the mortgaged property was ordered sold, the sale
having been held March 16, 1925, and made to the plaintiffs who were in possession of the
premises since June 18, 1919. The court approved and affirmed the sale and adjudication of
the said property to the plaintiffs, over the objection of the defendants.

This appeal is concerned with the order of the court approving the sale and adjudication of the
property to the plaintiffs, and with the order overruling the motion of the defendant for
rendition of account by the plaintiffs.

In the two decisions of this court, affirming the orders appealed from, the question now
submitted to this court was neither raised nor discussed. In the said two decisions this court
limited itself to ordering the remanding of the record is remanded, the subsequent proceedings
to be had are the giving of a new notice for the sale of the mortgaged property, and the
making of a demand upon by the mortgage, with the advice that upon failure of payment, the
mortgaged premises would be sold. The instant case, however, is a peculiar one in that the
plaintiffs have been in possession of the mortgaged property since the date of the first sale
which was annulled, and continued in said possession until the present time. This
circumstance gave rise to the right of the defendant-appellant to ask in turn that an account be
rendered by the plaintiffs who had been in possession of the mortgaged property by virtue of
sales that were annulled on account of irregularities in the proceedings.

In 19 R. C. L., 329, paragraph 104, we find the following:

Purchaser at invalid foreclosure sale. Though there is authority to the contrary, the great
majority of the decision are to the effect that, since a purchaser at a foreclosure sale, which by
reason of some invalidity, fails to pass the interest of the mortgagor acquired the interest of
the mortgagee, he becomes, if he takes possession of the mortgaged property with the
acquiesce of the mortgagor, a mortgagee in possession, entitled to the rights, and chargeable
with the liabilities, of a person in that capacity, and the same has been held true as to one who
takes possession under meson conveyances from a purchaser at a void foreclosure sale of a
valid mortgage. And the proposition has even been enunciated and applied that the consent of
the mortgagor is not necessary to establish the relation of mortgagee in possession, where
possession is taken under an invalid an invalid foreclosure proceeding. . . .

And in 27 Cyc., 1237, note 71 to paragraph 4, it is also held that:

Where possession was gained under foreclosure proceedings, the mortgagee occupies the
position of a mortgagee in possession, although such proceedings were defective or even
voidable for irregularity. (Blain vs. Rivard, 19 Ill., 477; Bryan vs. Branius, 162 U. S., 415; 16
S. Ct., 803; 40 Law. ed., 1022; Stevens vs. Lord, 2 Jur., 92) . . .. And "the term mortgagee in
possession is applied to one who has lawfully acquired actual or constructive possession of
the premises mortgaged to him, standing upon his rights as mortgagee and not claiming under
another title, for the purpose of enforcing his security upon such property or making its
income help to pay his debt. . . .

We might consider this phase of the question from the standpoint of the contract of antichresis
which is regulated by the Civil Code in articles 1881 et seq.

By antichresis the creditor acquires the right to receive the fruits of real property belonging to
his debtor, under the obligation of applying them to the payment of the interest, if any, and
afterwards to the principal of his credit.

Under the provisions of the Civil Code, the creditor in antichresis does not acquire title to the
property by the failure of payment of the debt, nor can the debtor recover the possession and
enjoyment thereof without first paying the creditor all that he owes. On the other hand, the
creditor is obliged to apply the fruits of the property to the payment, first, of the interest upon
the debt, if these is any, and then to the payment of the principal. Hence, the duty of the
creditor to render an account of said fruits to the debtor and the corresponding right of the
debtor that the said fruits be applied to the mortgage debt. (Barretto vs. Barretto, 37 Phil.,
234.)

In the case of Macapinlac vs. Gutierrez Repide (43 Phil., 770) this court said:

The respective rights and obligations of the parties to a contract of antichresis, under the Civil
Code, appear to be similar and in many respects identical with those recognized in the equity
jurisprudence of England and America as incident to the position of a mortgagee in
possession, in reference to which the following propositions may be taken to be established,
namely, that if the mortgagee acquires possession in any lawful manner he is entitled to retain
such possession until the indebtedness is satisfied and the property redeemed; that the non-
payment of the debt within the term agreed does not vest the ownership of the property in the
creditor; that the general duty of the mortgagee in possession towards the premises is that of
the ordinary prudent owner; that the mortgagee must account for the rents and profits of the
land, or its value for purposes of use and occupation, any amount thus realized going towards
the discharge of the mortgage debt; that if the mortgagee remains in possession after the
mortgage debt has been satisfied, he becomes a trustee for the mortgagor as to the excess of
the rents and profits over such debt; and, lastly, that the mortgagor can only enforce his rights
to the land by an equitable action for an account and to redeem. (3 Pom. Eq. Jur., secs. 1215-
1218.)

The objection of the appellees to appellant's petition for an accounting is based on the
doctrine laid down by this court in the case of Shioji vs. Harvey (43 Phil., 333), in which it
was held that:

Inferior courts cannot be very the mandate of the superior court, or examine it, for any other
purpose than execution; nor give any other or further relief; nor review it, upon any matter
decided on appeal for error apparent; nor intermeddle with it further than to settle so much as
been remanded. (Sibbald vs. United States [1838]. 12 Pet., 488, followed.)

This doctrine, however, is not applicable to the instant case, not only because the question as
to rendition of account by the plaintiffs, mortgagees in possession of the premises, was not
considered before, but also because the aforesaid two decisions of this court in the former
appeals did not decide except the question as to the annulment of the two sales of the
mortgaged property, decreed in the two orders of the court below which were appealed from.
It is clear that the judgment of the court dated February 11, 1919, ordering the defendant to
pay the debt within ninety days and directing the sale at public auction of the mortgaged
property in case the failure of payment has become final; but since the proceedings for the
foreclosure of the mortgage were annulled, the case must relate back to the date of the
judgment of the trial court, which was February 11, 1919, for the further proceedings. If the
defendant should pay his debt within the legal period, there would be no reason for issuing
any writ of execution. If he has a valid claim against the mortgagee by reason of the latter
having been in possession of the property, as he does in the present case, such a claim should
be settled before the mortgage for the reason that claim arose from the first sale that was later
annulled.

For the foregoing, the order of the lower court of July 27, 1925, approving the sale and
adjudication of the mortgaged property to the appellees must be, as is hereby, reversed. The
sale made by the sheriff on March 16, 1925, is hereby set aside and annulled. The order of
July 7, 1925, denying the plaintiff's motion of March 14th of the same year, is reversed and
the plaintiffs-appellees are ordered to render an account to the court of the fruits obtained
from the mortgaged property from the time they took possession thereof, to wit, June 18,
1919, until the date when they shall submit the account to the court for approval. The lower
court, after considering the account and the facts of the case, shall determine the amounts to
be applied to the payment of the interest of the debt, if any, and the rest to the payment of the
principal, making such orders as may be necessary to enforce compliance with the judgment
rendered by the court on February 11, 1919. So ordered.

Avancea, C. J., Johnson, Street, Ostrand, Johns, and Villa-Real, JJ., concur.
Malcolm and Romualdez, JJ., took no part.